- The Washington Times - Friday, March 27, 2009

NEW YORK (AP) - Crude prices fell sharply to end the week and natural gas tumbled to seven-year lows as a worsening economy led to more painful cuts in the industrial sector.

Benchmark crude for May delivery dropped $1.96 to settle at $52.38 a barrel on the New York Mercantile Exchange.

The price decline put an abrupt end to a weeklong rally, but oil prices were still 3 percent higher than a week ago. Crude prices hopped above $50 a barrel last week for the first time in almost three months after the Federal Reserve announced it would pump more than $1 trillion into the economy by buying Treasury bonds.

But the economy continues to struggle. Government reports this week showed that energy demand continued to fall and U.S. storage facilities were crammed with a huge surplus crude and natural gas.

By Friday, a stronger dollar helped push investors away from commodities. Crude, which is traded in U.S. currency, tends to move in opposite directions to the dollar.

“The dollar’s strong as hell today,” Andrew Lebow, senior vice president and broker at MF Global. “It’s gotten people’s attention.”

Natural gas prices fell more than 16 percent in three days to end the week, settling Friday at $3.631 per 1,000 cubic feet. The last time natural gas was that cheap was Sept. 26, 2002, when it settled at $3.58 per 1,000 cubic feet, analyst and trader Stephen Schork said.

Analysts see natural gas prices as a better reflection of market fundamentals since it attracts fewer speculators than crude, and Schork said he expects other energy stocks to follow natural gas down next week.

“There’s a bullish current to this market, but I don’t think it’s as strong as many hoped,” Schork said. “There was a correction in natural gas this week, and I’d expect we’ll a bigger correction in crude next week.”

Major industrial companies are slowing production and cutting back on energy spending.

Johnson Controls Inc. said Friday it will reduce its work force and close 10 manufacturing plants.

The company, whose products include automotive parts, batteries and building systems, did not say how many employees will be affected or which plants it will close.

For most of the week, oil traders shrugged off such indicators and the upward momentum brought more traders into the market.

Oil prices set a high for 2009 on Tuesday and then again on Thursday. Investors snapped up stocks as analysts fretted about a plunge in oil exploration and there was a growing consensus that the world will struggle through another supply shortage.

Houston-based Baker Hughes Inc. reported Friday that drilling projects are in serious decline. The number of rigs actively exploring for oil and natural gas in the United States fell for the 10th straight week. The 1,039 rigs are the fewest in operation since at least January 2004.

A new study by Cambridge Energy Research Associates suggests plummeting crude prices could potentially cut expected new oil supplies in half within five years. The CERA report said that of the potential 14.5 million barrels per day in new production expected from 2009 to 2014, about 7.6 million barrels were “at risk.”

But most analysts agree any supply shortage is still a ways off because global demand has fallen so drastically.

“People are getting way ahead of the game,” said Michael Lynch, president of Strategic Energy & Economic Research. “There’s still a lot of inventory out there.”

The federal government said Wednesday that crude storage facilities in the U.S. are brimming with more oil than they’ve had in 16 years. Combined with the nation’s strategic petroleum reserve, the nation now has 1.05 billion barrels of oil in storage _ enough to fuel roughly 44 million cars for a year.

The Energy Department said Thursday that U.S. stores of natural gas rose by 3 billion cubic feet to about 1.65 trillion cubic feet for the week ended March 20. Schork noted that electricity demand is way down, with the amount of electrons transmitted last week at the lowest level since April 14, 2006.

“Bottom line, nothing has changed,” Schork said in his daily oil report. “Underground caverns, mines and aquifers are brimming with molecules for this point in the season. The heating season is winding down and industrial and commercial demand is virtually nonexistent.”

OPEC has been trying for months to slash crude production and counter a withering global appetite for oil.

The Organization of the Petroleum Exporting Countries has promised to slash production by 4.2 million barrels per day. Companies that track supertankers show that exports from OPEC countries have dropped to the lowest level since June 2003, according to analyst Addison Armstrong.

Meanwhile, retail gas prices rose every day this week, climbing another 1.7 cents overnight to a new national average of $2.026 per gallon, according to auto club AAA, Wright Express and Oil Price Information Service. A gallon of gas is 13.5 cents more expensive than a month ago but $1.241 cheaper than a year ago.

Gas prices rise every year at about this time as refiners shut down for maintenance and change over to summer gasoline blends.

In other Nymex trading, gasoline for April delivery fell 4.32 cents to settle at $1.4879 a gallon, while heating oil dipped 4.85 cents to settle at $1.4330 a gallon.

In London, Brent prices fell $1.48 to settle at $51.98 a barrel on the ICE Futures exchange.


Associated Press writers Louise Watt in London, Pablo Gorondi in Budapest, Hungary and Kelly Olson in Seoul, South Korea, contributed to this report.

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